Rio Tinto says Mongolian mine project is on track

Wed Jan 30, 2013 5:35pm EST

Jan 30 (Reuters) - Rio Tinto Plc said its Oyu Tolgoi project in Mongolia is on track to reach commercial production in the first half of 2013, countering a media report saying the company was considering a temporary halt to construction work because of political issues.

Shares of Turquoise Hill Resources, the Rio Tinto subsidiary that owns 66 percent of Oyu Tolgoi, tumbled as much as 10 percent on the Toronto Stock Exchange on Wednesday after the report, triggering a circuit-breaker halt. The Mongolian government owns the remaining 34 percent stake.

"The power is secured, first ore produced and the concentrator switched on," said Rio Tinto spokesman Illtud Harri. "We are on schedule for first commercial production in the first half of the year."

Bloomberg News reported on Wednesday that the company was considering temporarily halting construction at the $6.2 billion project, citing two unnamed sources.

The suspension, according to the story, was under consideration to protest Mongolia's demands for a bigger stake in the project and new mining royalty rates.

With the first phase of the project on schedule and nearing commercial production, it is unlikely that the companies would suspend the initial project, said Tony Robson, a mining analyst with BMO Capital Markets, in a note to clients.

"It remains possible, however, that the companies are considering a delay of the Phase II underground development until the political situation is resolved," he said.

Turquoise Hill shares closed down 3.4 percent at C$7.87, while Rio Tinto's stock closed down 0.7 percent at 3,552 pence on the London Stock Exchange.

Rio and Turquoise Hill signed an investment agreement with Mongolia in 2009 that covered the construction and operation of the copper-gold mining complex, which will be one of the biggest copper producers in the world.

In October, the two companies rejected a request from the government to renegotiate the deal.

With metal prices near historic highs, resource nationalism has become a top concern in the mining industry as governments and local stakeholders around the world demand a bigger piece of the pie.

Higher taxes and royalties on big mining companies are often used by politicians as populist moves to help rally the public and serve as platforms ahead of elections.

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